Zorro: The Clash of Trademark Law and the Public Domain

A new lawsuit filed this month in U.S. District Court explores the tension between trademark law and intellectual property which has otherwise fallen into the public domain.  Generally, new artistic works are subject to copyright protection of a limited duration, calculated by the author's life plus a term of years after the author's death.  Once the copyright expires, the work becomes part of the public domain, and it is free for others to use.

However, these issues are not necessarily so clean cut when another party finds a way to assert trademark rights in that material.  Trademarks protect brands, and serve to indicate the source of goods and services in commerce.  Because trademark rights can be potentially infinite, a party may attempt an end run around the public domain by asserting a monopoly over a famous name or character through trademark law--and such is the case with Zorro, alleges plaintiff playwrite Robert Cabell.

According to Cabell's complaint, he created a musical based on the fictional Zorro character that first appeared in Johnston McCulley's serial story, The Curse of Capistrano in 1919.  Under the U.S. Copyright Act in force at the time, the copyright in McCully's Zorro story expired in 1975, and the story became part of the public domain after that time.  Cabell's musical, first released as an audio CD in 1996 has since been made in to a stage production and is scheduled to be performed at a festival in Germany this summer.  However, Cabell alleges that the defendants named in the case fraudulently obtained multiple U.S. trademark registrations during the 1990's in the Zorro name, and are using those marks to interfere with his ability to perform the play by threatening lawsuits against those intending to the produce the play.  Cabell asserts that defendants tortuously interfered with his business relations, and he also seeks declaratory judgment of non-infringement and cancellation of all of defendants' Zorro trademarks.

Whether Cabell's claims have merit is yet to be determined, but it looks like Zorro's next duel will be in court.

Trying to make the MET pay

Ever been to the Metropolitan Museum of Art in New York City - better known as the MET? Did you pay to get in? Did you know you didn't have to? I have to admit the first time I went it was not clear that the entrance fee was not compulsory. It was only on a subsequent visit that I was asked what I wanted to pay that I realised that I had a choice. It turns out this is not uncommon. However, some appear to have had a more extreme reaction than myself.

Reuters reports that:

... a lawsuit filed on Tuesday against the museum complains that most museum-goers have no idea that the "recommended" $25 entrance fee is nothing more than a suggestion.

The plaintiffs include a member of the museum, along with two Czech tourists who purchased single-day admissions. They argue the museum employs misleading signs and other techniques to dupe its 6 million annual visitors into believing they must pay to gain access.

The museum's rent-free lease with the city mandates that it open its doors to the public for free on multiple days a week, although it is permitted to ask for a voluntary fee. But the lawsuit says the museum deliberately deceives its visitors into believing that the charge is mandatory.

Signs above the admissions desk that list the entrance fees feature the word "recommended" in small type below the word "admissions" in larger, bold type. The lawsuit also pointed out that visitors are funneled in lines to the admissions desks, where cashiers await to collect the fee.

"MMA has misled, and regularly misleads, members of the general public to believe, on all days of the week during times when the MMA is open, that they are required to pay the Admission Fees in order to enter Museum Exhibition Halls," the lawsuit claimed.

... [The] complaint asks for an injunction [requiring the museum to make its policy clearer to visitors] as well as unspecified damages for all museum visitors who, like the three named plaintiffs, paid to enter with a credit card.

This is the second lawsuit filed against the MET challenging its admission fee. Back in November 2012, two members of the MET (represented by the same counsel as this latest claim) brought a very similar claim for consumer fraud, and for charging unlawful admission fees in violation of New York State law.

A spokesperson for the MET says that the claims are unsustainable. It remains to be seen what the court thinks.

Source: Reuters, 5 March 2013, New York Post, 15 November 2012

Sir Joshua Reynolds' portrait of Omai is a 'wasting asset'

The Upper Tribunal has announced that Sir Joshua Reynolds' famous portrait of the South Sea Islander Omai, sold in 2001 for £9.4m, is a 'wasting asset' - and accordingly, that no capital gains tax is payable on the proceeds.

However did they work that one out?

Before its sale, the painting was on display in Castle Howard. The castle had been owned since 1950 by a company which ran a business exhibiting the castle and grounds to the public. But the painting itself was owned by Lord Howard and, at his death in 1984, passed to his estate. First Lord Howard, and later his executors, allowed the company to exhibit the painting on an informal basis, with no lease or licence for its use in place. 

Following the portrait's sale in 2001, the executors stated that no tax was payable on the sale proceeds. This, they argued, was because the painting fell into the definition of 'plant and machinery' (or more specifically, plant) for the purposes of section 44 of the Taxation of Capital Gains Act, which in turn meant that it was automatically deemed to be a 'wasting asset' under section 44 - and wasting assets are not subject to capital gains tax. 

This argument failed in the First Tier Tribunal (tax). The executors appealed in the Upper Tribunal. 

Surprising as it initially sounds, the higher tribunal agreed with the executors' reasoning. There is no statutory definition of 'plant', and so in determining whether the painting was plant the tribunal considered tests set down in case law. These tests required that to be plant, the painting must satisfy:

(1) the 'function test' - i.e. it must be used for the purposes of the trade carried on by the company; and

(2) the 'permanence test' - i.e. it must have a sufficiently permanent place in that trade (this test prevents trade stock falling into this definition).  

The Tribunal held that painting was used in the company's trade. It was one of the attractions of the castle and helped bring in visitors. And whilst not owned by or formally leased to the company, it had been displayed in the castle on an indefinite basis and had in fact been in situ from 1952 to 2001. This was deemed to satisfy the test of permanence. 

HMRC's main argument against the idea that the painting was plant was based on the fact that the painting was used in the company's trade, while the painting itself was owned not by the company but by the executors - so that the painting was not plant in the executors' hands, and capital gains tax was therefore payable. But the tribunal held that the painting, having satisfied the two tests, was plant; the legislation did not permit a finding that it could be plant in one party's hands and not in another's. 

In short, odd as the conclusion seems at first sight, Reynolds' Omai was indeed a wasting asset for capital gains tax purposes and the lucky executors had no capital gains to pay. Anyone selling a valuable artwork which has been used for business purposes (whilst not being stock) may be interested to learn of this wide definition of 'plant' and the unexpected results to which its application may lead. 

More legal protection for artists?

The director of the United States Copyright Office, Maria A. Pallante, has called for the U.S. Copyright Law to be updated.

In a statement to the Subcommittee on Courts, Intellectual Property and the Internet Committee on the Judicary, Pallante has submitted that the current law, the majority of which was enacted way back in 1976, is outdated and no longer provides effective protection to authors of copyright works.

Pallante says:

It is both possible and necessary to have a copyright law that combines safeguards for free expression, guarantees of due process, mechanisms for access, and respect for intellectual property.

To this end, I would like to state something that I hope is uncontroversial. The issues of authors are intertwined with the interests of the public. As the first beneficiaries of the copyright law, they are not a counterweight to the public interest but instead are at the very center of the equation. In the words of the Supreme Court, "[t]he immediate effect of our copyright law is to secure a fair return for an 'author's' creative labor. But the ultimate aim is, by this incentive, to stimulate artistic creativity for the general public good." Congress has a duty to keep authors in its mind's eye, including songwriters, book authors, filmmakers, photographers, and visual artists. A law that does not provide for authors would be illogical — hardly a copyright law at all.

Pallante also points out that Congress will not need to start from scratch, as it has already laid the groundwork for many of the core issues, with reports in progress on a number of topics including resale royalties for visual artists.

Pallante's statement will no doubt raise a lot of debate in both the IP community as well as the art community. It is unlikely, however, that we will see any immediate effects.

Pallante's full statement can be found here.

Commentary from the Copyright Alliance here.

Get your offshore company here: an unusual art project

It's not often that taxation becomes the subject of an art project. But Paolo Cirio, an Italian who describes himself as a "contemporary artist and pirate", has based his latest project on the topic of tax havens.

His press release explains that having "set up a company in the City of London as a shield for legal persecution", he has "hacked the governmental servers of the Cayman Islands and stole[n] a list of all the companies incorporated in the country, making it public for the first time". Not only this, but via his website at Loophole4All.com, you too can purchase a (faked) certificate of incorporation for one of these companies for the bargain price of 99 cents. "Finally," the release goes on, "small businesses and middle class people can invoice from the major offshore centres and avoid unfair taxes, legal responsibility and economic disruption in their own indebted home countries".

The Cayman Islands Companies Registry is not impressed by Cirio's artistic output. "Basically," says its senior official registrar Donnell Dixon, "the guy is scamming people." Compass Cayman reports that Dixon is concerned members of the public will purchase such certificates thinking that they are real. Dixon has also claimed Cirio has not in fact hacked the Cayman Islands' registry of company details, and that the details on Loophole4All.com are publicly available – a statement Cirio refutes. Presumably, if Cirio did not in fact hack any servers, he is at a much lower risk of any legal repercussions – without his art project being any the less thought-provoking.

Cirio's project is riding the crest of a huge wave of public interest in taxation, with the news full of tales about multinationals which make millions in the UK but pay minimal UK corporation tax, the Big Four accountancy firms questioned by the Public Accounts Committee, and consumers apparently boycotting those companies they feel are not paying their way. Its commentary on the lack of tax transparency in tax havens will certainly chime with public sentiment, and it's unlikely that many will be feeling much sympathy for the administrative woes of the Caymans Companies Registry.    

Read more here.

More UK tax breaks

Last month I reported on the UK government's 'acceptance in lieu' (AiL) scheme.

This week, the Department for Culture, Media and Sport (DCMS) launched the "Cultural Gifts Scheme." The Scheme, which will be administered by the Arts Council, will allow UK taxpayers who own art or collections of heritage objects, which are considered to be pre-eminent, to be donated during their lifetime (rather than after their death, as with the AiL scheme) in return for a tax reduction to their tax liability.

Culture Minister Ed Vaizey has said of the scheme that it "is aimed at encouraging gifts and donations of wonderful treasures to the nation, where they can be enjoyed by all."

How will it work?

A UK taxpayer who owns an artwork which is considered pre-eminent, can offer to donate the work to the Arts Council. The offer will be considered by the AiL Panel (the “Panel”). If the Panel considers that the object is pre-eminent and meets the relevant conditions, they will agree a valuation and then make a recommendation to the relevant Minister (either the Secretary of State for Culture, Media and Sport, the Welsh Ministers, the Scottish Ministers or the Northern Ireland Department for Culture, Arts and Leisure). If the relevant Minister agrees with the recommendation, the object will then be allocated by the appropriate Minister to an eligible museum or gallery. Alternatively, where an offer is made with a wish that the artwork be allocated to a particular institution, the Minister can agreed to the allocation and the object will be transferred to that institution. If the Panel assesses an object as not being pre-eminent, it will be rejected. There will also be an annual limit of £30 million for both the Cultural Gifts Scheme and AiL Scheme. The Panel may also reject a donation where acceptance would cause the annual limit to be exceeded.

Upon formal acceptance of a donation, the Arts Council will send confirmation of the donation to HMRC. HMRC will not apply the tax reduction to a person’s tax liability unless and until the Panel has confirmed to HMRC that the relevant conditions for the tax reduction have been met. The tax reduction will only be available against the income tax and capital gains tax liabilities of individual donors or against the corporation tax liability (including liabilities on chargeable gains) of corporate donors.

DCMS have produced detailed practical guidance on how to make an application under the Cultural Gifts Scheme. This can be found here.

Forging Art

Need any tips?

A new book by Jonathon Keats (art critic, journalist, novelist and artist) might be right up your street.

"Forged: Why Fakes Are the Great Art of Our Age", which was published last month, is said to "[explore] art forgery from ancient times to the present. In chapters combining lively biography with insightful art criticism, Jonathon Keats profiles individual art forgers and connects their stories to broader themes about the role of forgeries in society. From the Renaissance master Andrea del Sarto who faked a Raphael masterpiece at the request of his Medici patrons, to the Vermeer counterfeiter Han van Meegeren who duped the avaricious Hermann Göring, to the frustrated British artist Eric Hebborn, who began forging to expose the ignorance of experts, art forgers have challenged 'legitimate' art in their own time, breaching accepted practices and upsetting the status quo. They have also provocatively confronted many of the present-day cultural anxieties that are major themes in the arts. Keats uncovers what forgeries--and our reactions to them--reveal about changing conceptions of creativity, identity, authorship, integrity, authenticity, success, and how we assign value to works of art. The book concludes by looking at how artists today have appropriated many aspects of forgery through such practices as street-art stenciling and share-and-share-alike licensing, and how these open-source "copyleft" strategies have the potential to make legitimate art meaningful again."

It sounds like a really interesting read.